Long before he took over as chief economist at BMO Nesbitt Burns in February – following Sherry Cooper’s retirement – Douglas Porter was one of Canada’s best-known economists. His pithy and concise comments on key issues have been widely quoted by the media for more than two decades. Now, he’s the boss of the team whose job is to analyze data and advise the bank’s executives, clients, and the public at large.
Is it a big shift to go from deputy to chief economist?
I was deputy chief for eight years prior to this, so I’ve got a pretty good feel of what the requirements are. The one thing that will change a bit is that I will probably do more internal meetings. In terms of analyzing the economy, producing reports, doing presentations and dealing with the media, I don’t think things will change.
Do you have a different management style than Sherry Cooper?
You might be hard pressed to find two more different people. But everyone here knows me very well, and in some cases they have been dealing with me for 20 years. So I don’t think there are going to be any surprises.
Are there any new innovations in your department?
One thing that is new in the last little while, is video-casting. Our equity research team spearheaded that, and we were encouraged to follow their lead. It fits economic reporting brilliantly. It involves walking the client through a slide show, which is a brief synopsis of one of our reports. So far the feedback has been quite good.
How important is it for you to communicate with the public?
There really isn’t that much difference between any of the major economic forecasts [so it is important to] find interesting wrinkles in the broader story. Getting your message through the clutter of consensus is one of our challenges. We try to make our reports relatively easy to read and friendly to the average person. We try to come up with quotable quotes. That is no secret. But of course there has to be real analysis behind it.
Are there certain things you can’t comment on publicly?
On certain topics, things are sensitive. Obviously, deals that the Bank of Montreal is involved in, are a no-go area. But also on certain political topics, or on the bank’s own rate policy, we have to be careful.
Early in your career you worked briefly at the Bank of Canada. Was that valuable?
It was incredibly valuable, and not just because of the contacts I made. [It was useful] to see some of the inner workings of the bank, and how a huge economics department functioned and built up its model and view of the world. I worked there in 1982-83, which was the worst post-war recession of Canada’s economic history since the great depression. It was a fascinating time. We were dealing with the highest interest rates that many of us will see in our lifetime.
You were at BMO for another crisis – the 2008-2009 economic meltdown. What was the atmosphere like then?
In many ways it was the worst period of my career [because of] the demands on our time, and just how quickly the landscape was changing. It was a tough period that I would not want to relive.
Was it also a valuable experience, once it was over?
Definitely. There were many, many lessons to be learned, but as an economic forecaster it was a humbling experience. We had been looking for a U.S. recession at the start of that year, but we had no idea it was going to be that bad.
Is there a single specific concern you have now about the Canadian economy?
The level of household debt is a concern. The biggest concern has always been potential external shocks – whether it is the European debt crisis or the U.S. fiscal situation, or possibly a hard landing in China.
Are you worried about a sharp rise in interest rates?
I think that is actually one of the least of our concerns. If we have a spike in interest rates at some time in the next couple of years, it would likely be driven by a good news story that the U.S. economy turned out to be a lot stronger than most people expected. You’d have income and job gains to offset the run-up in interest rates.
I am more concerned about the other side of the coin – that something could go badly wrong in the global economy that leads to a long period of very weak activity. I am more worried about the downside risks of growth, rather than the upside risk that could lead to higher interest rates.
What was your best call as an economist?
I think we have a very good record on the U.S. economy. Despite the fact that we missed the depths of the recession, we had the generally idea down pretty well.
Anything notable that you got very wrong?
We have consistently overestimated how high Canadian interest rates would be. When you look back over the last decade, the consensus has overestimated how high the Bank of Canada would raise [the] rate, or they have underestimated how much they would cut them. I can’t point to a single reason to explain that. We have even seen that this year. Many, including ourselves, have just kept pushing out the date at which we see the Bank of Canada raising interest rates.
Is it unfair that economists get the bad rap of being wrong most of the time?
During periods of relative calm for the economy, economists actually do quite a good job of getting the forecasts right. The bigger failing, and the issue that all economic forecasters have to address, is that we still struggle to catch that big turning point when the economy actually dips into a recession. The reason it is so hard to catch is because when the economy actually does stumble into a recession, it is a chain reaction that happens very, very quickly.
When you were young, did you dream of being an economist?
No, I’m not even sure I knew what economics was until late high school. I don’t think too many kids dream of becoming an economist. My oldest brother is an economics professor and that is kind of how I got into it in the first place. I took it as a secondary course in first year university – I actually went into chemistry. I [then] found [economics] was a natural fit for me.
I find economics is the right blend of mathematics, history and communications. To be a good economist you have be a very good speaker or a very good writer, and you definitely have to have a mathematical mind. But you also have to really appreciate history as well.
Have you been tempted to work outside Canada?
I have a bit of regret that I didn’t at least spend a few years outside of the country. For any younger person who has that opportunity, whether in school or early in their career, I couldn’t recommend it strong enough. That kind of experience is invaluable.
You became well known for your comments on the price differential between Canadian and U.S. products. How did that catch your attention?
On a single day I bought a birthday card and a book, and in both cases I noticed this incredibly dramatic difference in prices between Canada and the U.S. In one case I complained to the clerk and got a blank look, of course. I thought, here in Canada we are getting all the pain from the stronger dollar in terms of how it is affecting our manufacturing sector and our tourism industry, and we were getting next to none of the benefit, in terms of consumer prices.
I think we are beginning to see some movement on this front. The pressure from cross-border shopping is really coming to bear on retailers now. There is an intensifying war going on among retailers that is starting to bring down prices. The gap has narrowed, and if the currency were to weaken 5 to 10 per cent, I don’t think this would be an issue any more.
Title Chief economist and managing director, economic research, BMO Nesbitt Burns Inc.
Personal Born in London, Ont.; 52 years old.
Education Bachelor and Masters degrees in economics from the University of Western Ontario.
Worked in the research department of the Bank of Canada from 1982 to 1983.
Joined Bank of Montreal in 1984.
Worked as an economist at Bank of Nova Scotia from 1988 to 1995.
Returned to BMO in 1995, becoming deputy chief economist in 2005 and chief economist in 2013.